News
Making good on Unix
After boldly investing billions, IBM has its rivals on the defensive.
By Dan Zehr
AMERICAN-STATESMAN STAFF
Monday, September 26, 2005
With a subpar product in a dying market, IBM Corp. simply did what
any rational company would do — double its billion-dollar investment.
It was the late 1990s, and Big Blue's underperforming Unix servers
were getting pummeled by rivals such as Sun Microsystems Inc. To
make things worse, servers using desktop-computer technology were
on the rise. And many figured the halcyon days had come and gone
for proprietary Unix machines — the servers that do much of
the heavy computing for businesses such as databases.
What better time to put up billions of dollars?
"Like a lot of things at IBM in the late '80s, early '90s,
we kind of lost our way," said Adalio Sanchez, general manager
of IBM's pSeries business, which includes the Unix servers and Power
microprocessor technology developed mostly in Austin. "So we
made a multibillion-dollar commitment at the turn of the century
to regain our leadership.
"And quite frankly," he added, "we've had the competition
on the defensive ever since."
It's not idle boasting. The company has nearly doubled its share
of the Unix server market in the past six years.
After trailing Sun, Hewlett-Packard Co. or both since the late
1990s, IBM finally took the top spot of the Unix market in the fourth
quarter of last year, according to research firm IDC. IBM took the
top spot again in the most recent quarter of this year, IDC said.
Because it uses a different methodology, rival research firm Gartner
Inc. showed IBM No. 3 in Unix behind Sun and H-P. But Gartner also
showed IBM gaining ground on its rivals inwhat's
essentially a three-horse race for Unix sales. All three companies
are running neck-and-neck in what's expected to be a market worth
more than $16 billion this year.
"The Unix market is still alive," said Jean Bozman, an
analyst at IDC.
And it's alive despite the massive onslaught of industry-standard,
x86 servers. It was those x86 servers — built around an Intel
Corp. chip architecture and typically running Windows — that
many thought would ultimately render Unix extinct.
That hasn't happened, but the emergence of x86 has left just IBM,
Sun and H-P battling it out for the top spot, with No. 4 Fujitsu
generating less than 9 percent of Unix sales.
It's a fun time to be working in the Unix business at IBM, according
to Sanchez. About a third of IBM's 6,300 workers in Austin work on
Unix systems and software — a business that, judging from IDC
numbers, generated about $8 billion of IBM's $96.2 billion in revenue
last year.
It's still small compared with Big Blue's services business, which
accounts for 54 percent of total revenue. But in the company's most
recent quarter, Unix-related sales increased 36 percent from the
same period last year, outpacing most of the company's businesses.
IBM's Unix journey included a lot of work, money and risk. The
company had to clean up AIX, the proprietary operating system it
runs on its Unix servers, but the bulk of the new investment went
to retool its Power processors and how it manufactured them.
"We knew performance was king in this space," Sanchez
said. "And the way to get to the performance is to get the fastest
microprocessors."
Things slowly started to turn. The Power4 processor hit the market
in December 2001 — on time and at the performance levels IBM
had promised. Meanwhile, Sun had delayed the release of its new Sparc
processor, and H-P was beset by delays and problems on its joint
venture with Intel to develop the Itanium processor.
"It would be tough to find an organization in (information
technology) that has performed as well as IBM's pSeries group over
the past few years," said Charles King, analyst at Pund-IT Research
in Hayward, Calif. "You can certainly take advantage of your
competitors' errors, but at end of the day, it's not enough to drive
the kind of success pSeries has had."
Much of that success stems from the fact that IBM products run
the gamut of servers, King said. Big Blue sells anything from industry-standard
servers to state-of-the-art mainframes. It can transfer useful technology
from one set of servers to the other. Some of the features of IBM's
Unix servers were first developed for its most advanced mainframes.
OhioHealth Inc. expanded its collection of IBM's Unix servers recently,
said Jim Lowder, vice president of technology at the 15-hospital,
not-for-profit health care organization in Ohio. But the majority
of its systems run the Windows operating system on industry-standard
servers, including some from H-P and Dell Inc.
"We have much fewer issues with Unix than with the Windows
platform," Lowder said.
He chooses the more expensive Unix for reliability's sake, but
some say the performance gap between it and industry-standard machines
running Linux or Windows is closing.
"It wasn't very long ago you'd never trust your most
critical enterprise applications to run on Windows," said
Ed Taylor, who used to train and staff Unix development teams and
now runs Collective Technologies, an Austin consulting firm. "Those
years are fairly long gone now, even though they're only a few
years behind us."
That doesn't mean technology buyers are going to run en masse to
the cheaper industry-standard machines.
Unix has remained popular for critical business applications mostly
because that's what those programs always have run on, Taylor said.
Now that Linux can run on both Unix and industry-standard machines,
companies might have more flexibility to use either platform.
Typically, it takes more of those x86 boxes to run the same applications
that fewer, more powerful Unix boxes handle. That often means fewer
servers to deal with, easier management and less electricity needed
to run and cool those machines.
IBM's pitch: Unix servers usually run at a higher capacity than
industry-standard servers, Sanchez said, so customers get more bang
for the buck.
"If you buy a Ferrari to drive around town at 40 miles an
hour, you paid a lot of money for an engine you're not utilizing," he
said. "If you're on a racetrack, and that's what you do for
a living, is that a premium, or is that value?"
On the lower end of the server market, the paltry prices of industry-standard
servers tend to provide the best price-to-performance ratio. (An
Intel-based server can be had for as little as $500, or as much as
$10,000; Unix systems typically start around $5,000 and can climb
into the millions of dollars.) As customers move up to more intensive
applications in the midrange and higher end of the market, Unix machines
tend to take over.
In fact, while the sales of Unix servers have grown at a moderate
pace overall, sales of higher-end Unix systems have been growing
more rapidly, said Bozman, the analyst at IDC. Worldwide sales of
more expensive, high-end Unix servers grew 19.2 percent in the second
quarter, and midrange Unix servers increased 15.6 percent.
Sales of the least-expensive Unix servers — those that overlap
the market for industry-standard machines — dropped 19 percent,
but the overall Unix revenue still grew about 3 percent thanks to
the top end.
"The good days of Unix are back," IBM's Sanchez said. "Growth
is back, and we're leading that growth. And it's all about the amount
of investment we're making and innovating in areas that matter to
our clients."
Big Blue's march to the top*
Since 1999, IBM has gone from No. 3 to No. 1 in Unix servers, nearly
doubling its market share.
- 1999: 16.3%
- 2000: 16.9%
- 2001: 21.2%
- 2002: 19.3%
- 2003: 24.5%
- 2004: 24.2%
- 2005: 31.1%
*Second-quarter data; source: IDC |
